Ramblings and doodlings of an unsettled mind!

In the much hyped debate of the new issuance of 4G license by Malaysian Communications and Multimedia Commission, so much controversy was drawn to the winners. Particularly against Puncak Seamangat Technology Sdn. Bhd., deemed ‘not ideal’ by detractors.

Thursday December 13, 2012

Puncak Semangat’s award ‘not ideal’

PETALING JAYA: While Malaysia’s top three telcos already have plenty of spectrum, analysts say the process by which little-known Puncak Semangat Sdn Bhd was awarded the largest block of the 2.6 Ghz bandwidth was not ideal.

“There appears to be a lack of tender process or criteria and scoring system for the award process, unlike the 3G beauty contest. In addition, there was no official call for expression of interest for the spectrum, which is a scarce resource,” CIMB Research said in a note to clients.

“While we agree that competition should not be infrastructure-based, the current structure could inadvertently lead to rent seeking. The smaller players could seek lease payments for the use of their 2.6GHz spectrum from the Tier-1 players.

“In our view, infrastructure-sharing can be achieved by imposing strict rollout and open access conditions on the winners of the spectrum. Winners could be selected based on their commitment to roll out and wholesale pricing to access seekers, such as Singapore’s crafting of the structure for the Next Generation National Broadband Network.”

Malaysian Communications and Multimedia Commission (MCMC)chairman Datuk Mohamed Sharil Tarmizi had on Tuesday defended the regulator’s decision to cede 40 MHz to Puncak Semangat, which has no track record in telecommunications.

The other seven who received allocations were given 20 MHz each, which does not allow for optimum operation unless they pair up to share infrastructure.

But Sharil reasoned that the Tier-1 telcos including Celcom, DiGi and Maxis already had more than 100 MHz of spectrum each after taking into account the allocations from the 900 MHz, 1,800 Mhz and 2.1 GHz bands they were previously given licences to.

The entry of Puncak Semangat would also invigorate competition in the market as well as promote network sharing between old and new players, Sharil added.

In a report, RHB Research Institute said: “Overall, the MCMC hopes to promote greater competition, which should translate into lower prices, when it made the decision to allocate the LTE spectrum to eight players.

“With a 20 MHz spectrum block, the MCMC argues that the smaller players would have a bargaining chip when negotiating infrastructure sharing arrangements with incumbents.”

Meanwhile, M&A Securities pointed out that the allocation would benefit consumers as end user prices may fall in light of more competition.

“However, from the telcos’ point of view, heavy discounting is needed to secure customers and this will compress their margins. There is a potential the major telco (Maxis, DiGi, Axiata, U Mobile) will consolidate to cushion the compressing margins via network sharing.

“For now we foresee network consolidation as sufficient to cushion against compressing margins as is ongoing between Maxis-U Mobile, Celcom-DiGi and potentially Redtone with other suitors,” it explained.

Despite the prospect of further pressure on margins, M&A Securities upgraded the telco sector to overweight from neutral due to its low Beta nature.

“We believe fund managers will rebalance their portfolio in 2013 to low Beta sectors in anticipation of the general election in March or April.

“We believe the telco players will adjust and react to the competitive environment and realign their strategy accordingly as they have done in the past three decades in order to maintain their profitability and niche survival,” it opined.

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Some of the media reports find it contentious to tell the story with the connotation overtone that Puncak Semangat is backed by successful philantrophist-entrepreneur Tan Sri Syed Mokhtar Al Bukhary.

The Digital News Asia’s report on the justification to issuance of the new licenses is about rationalizing competencies between existing providers and striking a balance, with new players with fresh ideas. It is about getting a better deal for the nation and consumers.

It’s spectrum rebalancing: MCMC on 2.6Ghz allocation

‘Regulators the world over use introduction of new technology to inject competition and fresh ideas into market’

BEFORE going into his presentation on Malaysia’s Digital Transformation, Datuk Sharil Tarmizi (pic), chairman of the Malaysian Communications and Multimedia Commission (MCMC), asked if there were any licensees among the audience of journalists and analysts. No hands went up. He then pressed on to ask if anyone was representing the interests of any licensees. Anyone who thought he was trying to start with some humor was wrong because as he got into his presentation, it became clear from his regular digs aimed at the telcos that Sharil did not think too highly of some of their behavior — such as seeding doubt within journalists and analysts about the fairness of MCMC’s spectrum allocation or about how quickly it is moving on spectrum re-farming.

Nor did he think highly of the ability of the big three telcos, Celcom, DiGi and Maxis, to maximize the amount of spectrum they had. He rammed this home by making pointed reference to the fact that Vodafone in the UK had only 86MHz of total spectrum and was able to serve 20 million customers. Compare this to the 139MHz of Celcom, 109MHz of DiGi and 137MHz of Maxis with their customer base of 12 million, 11 million and 14 million respectively. Yet all three telcos claim they need more spectrum to serve customers better.

He also made a number of other points during his presentation, with the key one being about how regulators the world over typically will use the introduction of a new technology to inject new players with new ideas and excitement into the market, and not just farm out the new technology to the existing players.”It is not necessarily the players with the most money and customers who are the most innovative,” he says, driving home this point by saying, “We gave WiMAX licenses to four new players because the existing players [Celcom, DiGi and Maxis] were not moving fast enough.”

In the telco space, the new technology Sharil refers too takes the shape of spectrum which is needed to deliver the new and always faster technology — your 1G, 2G, 3G and 4G (first to fourth generation) services. He also addressed the 40MHz block of total 2.6GHz spectrum allocated to Puncak Semangat for its Long Term Evolution (LTE) rollout.

The fact that Puncak Semangat is linked to Tan Sri Syed Mokhtar al-Bukhary, the tycoon who seems to be getting his hands into every conceivable type of business, raised hackles. The fact that Puncak Semangat was the only licensee with no prior experience in the telco space raised hackles too. And the fact that Puncak Semangat received the largest chunk of spectrum for 2.6GHz only served to raise even more hackles. The other seven players got 20MHz each.

Sharil was prepared for the inevitable questions about this. On Puncak Semangat being new to the telco space, he pointed out that the four licensee players for WiMAX on 2.3GHz were also inexperienced back in 2006. Plus, one of them, YTL Communications Sdn Bhd, was totally new to the telco space.

On Puncak Semangat getting more spectrum than the other seven players, Sharil showed a chart (click to enlarge) with the amount of spectrum Puncak had versus the combined amount of the rest. Turns out that Puncak has the least amount of spectrum as compared to every other active telco. And Sharil points out that even 40MHz is just the bare minimum for Puncak to roll out a decent service.

He also says that what MCMC has done with 2.6GHz allocation is a form of spectrum rebalancing — that is, with the Tier 2 players getting the same amount of spectrum as the Tier 1 players. The Tier 2 players here refer to Packet One Networks (M) Sdn Bhd, REDtone Marketing Sdn Bhd, U Mobile Sdn Bhd and YTL Communications. Shahril makes an interesting point here. “There is no way we can negotiate with the Tier 1 players if we do not have strong enough Tier 2 players.” He also pointed to that fact that during the licensing of the WMAX spectrum, the MCMC had already shown a risk appetite by picking two new players, YTL and Packet One. This time it only picked one.

The incumbents though have been grousing that spectrum is too valuable and scarce a resource to be allocated to a new player.But perhaps they just don’t want the extra competition from a player with deep pockets. Perhaps everyone has been giving Puncak Semangat, which has predictably kept its head down, a hard time based on the wrong perception. Perhaps it did win the confidence of MCMC based on the strength of its business plan. We will all know soon enough when the rollout begins.

And, at the end of his presentation and the one-hour Q&A session that followed, Sharil shared a video of a seaweed seller in Sabah who moved from RM400 (US$131) in sales a month to an incredible RM20,000 (US$)6,530, thanks to a Community Broadband Center from where the seller’s daughter was exposed to the Internet and taught the basic skills to get her mother’s business online.”When people ask me why do you do this, well this is what makes it all worth it.” With access to the Internet improving all the time, Sharil makes the point that the story is not about the pipes anymore, signifying access. “It is about how you can transform lives.” Obviously MCMC believes the injection of fresh competition into the market can help achieve this.

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The rationalisation makes a lot strategic commercial sense.

Puncak Semangat value added services and networked

However, the underlying factors which got Puncak Semangat the winning garland at the ‘Beauty Contest’. As a technology solutions provider, Puncak Semangat Technology Sdn. Bhd. value added services and networking that are being placed on the table as the x-plus-factor.

These are the core values that helped shape the Puncak Semangat Technology service philosophy in the field of Human Capital Management Services, Financial and Treasury Management Services, Corporate Services, Legal & Secretarial and Strategic Procurement Management Services. Our clientele ranges from leaders in IT solutions, G2B & G2C procurement experts and many more.

The spin-off opportunities from the services provided and could be derived from Puncak Semangat’s network are expected to be enormous.

The proud success story that MCMC rural broadband connectivity brought about to many downtrodden Malaysians in the rural areas and the transformation their lives is very revealing why the award for the 4G goes to this solutions provider. Detractors, which include Opposition like DAP Director of Strategy Tony Pua is trying to paint them as ‘newbies’ and making the award a controversial, if not a political issue.

The actual fact the value-added Puncak Semangat has brought forth is also an avenue for the Federal Government via agencies like MARA, Pemandu, Peneraju and various other Ministries which have Bumiputera Development Programs to develop the Bumiputera Commerce and Industry Community. Now, the all these programs and proposed would be technologically generated and induced.

The Federal Government economic transformation program (ETP) to bring a higher level of livelihood and income for Malaysians, which include the Bumiputera could be quantum-leaped with technology inducement tools and programs such as 4G super broadband . More and more opportunities could be realised for the majority of Malaysians, where 45% of them are still not part of the rapid urbanisation growth.

Putting a finer point to it is that Syed Mokhtar isn’t the sort of entrepreneur when given the opportunity, he kept it to himself, complacent and someone who is not zestful into the progress and development of the business, market and industry. Most importantly, opening the opportunity to others especially aspiring Bumiputera entrepreneurs. His track record is the perfect testimonywhere he has been, where he got to and how he did it. In many ways, the progression has been phenomenal and prolific.

Hence, this latest MCMC license award was the result from a ‘Beauty Contest’ indeed.

The MCMC has put forward, on the surface, for injecting more competition into the high-speed mobile broadband market and pushing for the nationwide implementation of 4G/LTE technology.

Generally speaking, the more competition there is any particular industry or market, the better.

It applies equally to banking, legal services, telecoms and the airline industry, among others.

(using the MCMC argument, it makes sense that AirAsia came into being on routes carved out from a moribund airline industry where the state-owned flag carrier was coasting along in a “business as usual” environment).

Be that as it may. I think that the MCMC slipped up in monitoring Malaysian telcos implementation of the national high-speed broadband network, based on availability and affordability.

I spend a fair bit of time in Johor Bahru for work and business commitments. Trying to get a decent high-speed Internet connection (100-200 Mbps speeds with 99% availability) there in the CBD is seemingly an exercise in apparent futility.

It’s all the more galling when my business contacts in Singapore take the ready availability of high-speed and ultra high-speed Internet connections as a matter of course.

And does the MCMC monitor the quality of service provided by the telcos 3G and 3.5G services that are supposed to offer nationwide coverage? I don’t think it does, at least on the basis of information available to the public.

So, I am all for competition. As long as it’s done openly and transparently, and as long as consumers and end-users benefit.